The Great Indian Challenge

Indians love their booze, but beer, it seems, leaves them cold. The country ranks tops globally in consumption of whisky, but it's somewhere near the bottom in beer drinking. So why is just about everyone in the brewing industry scrambling to get a piece of the market?

Despite the obvious preference Indians have for distilled spirits, beer makers worldwide think there's great potential for selling their brews in the country.
A hot climate, an even hotter economy, and an enormous youth population look like an unbeatable combination in the eyes of Britain's SABMiller and Scottish & Newcastle, Heinekenof the Netherlands, and Denmark's Carlsberg.

Although India boasts the world's second most populous nation, when it comes to beer it barely figures on the map—leaving plenty of upside for brewers who can get in early. Annual per capita consumption stands at just 0.6 liters, or about a pint, compared with 23 liters in China, an average of 73 across Europe, and 78 in the U.S. Getting Indians to switch from liquor to beer won't be easy. Brewers must contend with a dizzying list of bureaucratic restrictions that make it tough and expensive to win customers and to build a national footprint. Steep tariffs render imports uncompetitive. And state excise taxes of as much as 150% can push the price of a pint of domestic brew up to more than Rs.100, or about triple what a shot of local whisky might cost.
"The market has huge complexities," says Jean-Marc Delphon de Vaux, managing director of SABMiller India. "You have to work it bottom-up, state by state."

Ads for beer are banned. As a result, brewers have to be creative in building their brands on a national scale. SABMiller, for instance, sells a mineral water called Royal Challenge—not coincidentally the name of one of its lagers. TV spots for the water are indistinguishable from traditional beer ads, down to the label on the bottle. The only difference: The actors guzzle a clear liquid rather than amber-colored suds. "It looks like a beer ad, but we sell water," says Delphon de Vaux.

In short, international brewers will be charged with crafting a beer culture in India largely from scratch. In that, at least, they have demographics in their favor. Roughly 60% of the population is under 30. What's more, incomes are rising, powered by an economy that's growing at 9%-plus. These trends are expected to fuel growth in beer consumption of up to 15% a year through the end of the decade.

To date, the biggest beneficiary of the surge has been Kingfisher. The brand rules the market, with a 45% share. But closing in is SABMiller, which over the past six years has spent an estimated $600 million in India to buy 11 local breweries. Today, the company's five brands command 37% of the market. And Heine-ken, though it's small today, is hoping to boost its profile following its $18 million purchase last year of a controlling stake in India's Aurangabad Breweries Ltd. "India," says Vivek Chhabra, Heineken's country chief, "is the place to be."